What Does “Per Diem” Mean In Real Estate? Definitions & Examples

What Does “Per Diem” Mean In Real Estate?

Per diem, derived from the Latin term meaning “per day,” is an important concept in real estate transactions. When a buyer enters into a contract to purchase a home, a specific closing date is set. If the loan is not approved by this date, per diem charges may apply.

These charges are paid to the lender and are reflected on the Closing Disclosure. Per diem in real estate refers to the interest that is charged daily on a loan. It is not compounded daily but rather represents the amount of interest payable for each day the loan remains outstanding.

The per diem amount is calculated and paid at the loan closing, prorated for the remaining days in the month. It is important for borrowers to understand per diem interest calculations when scheduling their first mortgage payment.

Key Takeaways:

• Per diem in real estate refers to daily interest charges on a loan.
• Per diem is calculated and paid at loan closing, prorated for the remaining days in the month.
• Understanding per diem interest calculations is crucial when scheduling the first mortgage payment.
• Per diem charges may apply if the loan is not approved by the specified closing date.
• Borrowers should check with their lenders regarding per diem interest policies and repayment cycles.

How Per Diem is Used in Real Estate Transactions

Per diem is a commonly used concept in real estate transactions, playing a crucial role in various aspects of the industry. Let’s explore how per diem is utilized in these transactions, including penalties, vacant listings, buyer requests, and loan administration.

Per Diem Penalties

Listing agents often include per diem penalty clauses in contracts to hold buyers accountable for any delays in closing. These penalties are designed to compensate sellers for the additional costs they may incur due to delayed transactions.

For example, if a buyer fails to close on the agreed-upon date, they may be charged a per diem fee, such as $100 per day, until the transaction is completed. This incentivizes buyers to adhere to the contract terms and complete the purchase in a timely manner.

Per Diem for Vacant Listings

When a property is listed for sale but remains unoccupied, sellers may incur expenses for each day it remains vacant. To compensate for these costs, per diem charges can be applied to the buyer.

This ensures that buyers are responsible for the financial burden associated with the duration between the contract signing and the official handover of the property. The per diem amount is usually calculated based on the agreed-upon rate and the number of days the property remains vacant.

Per Diem Requests from Buyers

Buyers also have the option to request per diem payments from sellers if they experience delays caused by the seller’s actions. For instance, if a seller fails to complete necessary repairs before the agreed-upon closing date, the buyer can request compensation for each day the repairs are delayed.

This helps protect buyers from potential financial losses and encourages sellers to fulfill their contractual obligations promptly.

Per Diem Interest and Loan Administration

Per diem interest is an integral part of loan administration in real estate transactions. It allows lenders to be compensated for the period between loan closing and the official start of repayment. Lenders calculate per diem interest using a daily interest rate and the number of days in the per diem interest period.

This interest ensures that lenders are reimbursed for the work involved in funding the loan before it is repaid. Borrowers should discuss per diem interest policies with their lenders to understand how the interest is calculated and whether there are any unique repayment cycle start dates or options for partial per diem interest payments.

Considerations for Per Diem Interest Charges

When closing a loan, borrowers must consider per diem interest charges, especially if the loan repayment date falls on the first day of the month. Per diem interest can impact the overall payment amount and should be factored into the borrower’s financial planning.

It is essential to understand the per diem interest policies of different lenders, including whether the interest compounds or if there are any unique terms or options available. This knowledge empowers borrowers to make informed decisions regarding per diem interest payments and their overall loan repayment strategy.

Understanding how per diem is used in real estate transactions helps both buyers and sellers navigate the intricacies of the industry. By being aware of the potential penalties, implications for vacant listings, buyer requests, and loan administration, parties can better plan and manage their transactions, ensuring a smoother and more successful real estate experience.

Per Diem Interest Explained

Per diem interest is a crucial aspect of mortgages in the real estate industry. It refers to the interest charged on a loan on a daily basis, specifically during the period between loan closing and the official start of repayment. This interest ensures that lenders are compensated for the work they have done to fund the loan before it is repaid.

Calculating per diem interest involves the use of a daily interest rate, which is then multiplied by the number of days in the per diem interest period. For borrowers, it is important to consider the impact of per diem interest on their overall payment amount.

This can significantly affect their financial planning, especially if the loan has a repayment date on the first day of the month. It is essential for borrowers to understand how different lenders structure their per diem interest policies.

Some lenders may allow partial per diem interest payments or have unique repayment cycle start dates. Being aware of these considerations can help borrowers make informed decisions when it comes to per diem interest payments and their overall loan repayment.